Commodities boom presents a challenge

Friday, 19 May 2006

The South Australian Centre for Economic Studies has warned that the state faces a major challenge adjusting to the boom in commodities sectors and a related squeeze on other sectors, such as manufacturing.

The Centre, led by Director Michael O'Neil, is a joint research initiative of the University of Adelaide and Flinders University.

In a report released this week, the Centre finds that the South Australian economy is performing well in terms of providing strong incomes and job growth, but that resource industries are desperately short of skilled labour.

Labour markets around Australia are tight, especially for skilled and experienced labour. This means that those sectors not enjoying a boom are losing highly skilled personnel to more lucrative industries, the report says.

"While there are some signs of a softening in commodity prices, there is underlying strength in the international demand for resources over the coming decade.

"These trends are fundamentally positive for the Australian economy, but there are potential losers from the process. In particular, people who work in declining industries may find that their wage levels come under pressure, or that their current jobs cease to exist. It will be important to them whether they have to relocate and/or retrain to find new employment.

"It is important that governments - both State and Commonwealth - stand ready to assist people who are disadvantaged. This assistance should take the form of helping people to adjust, rather than seeking to preserve production activities that are becoming unviable.

"Some of the dynamics associated with the commodities boom can already be seen in South Australia. The state's exports have been squeezed by the high Australian dollar and have shown only weak growth for several years now.

"Investment expectations in the South Australian manufacturing sector are quite subdued, while expectations are much more positive in mining.

"South Australia's gross state product growth in 2005-06 is estimated to have been about 2.5%. In 2006-07 a slightly slower growth rate of about 2% is expected.

"Employment is still expected to show quite solid growth and as a consequence, the unemployment rate is expected to fall. The national outlook for 2006-07 differs in that growth is expected to accelerate, mainly as a result of stronger export growth," the report says.


Contact Details

Associate Professor Michael O'Neil
SA Centre for Economic Studies
University of Adelaide
Business: +61 8 8313 4545
Mobile: +61 (0)408 812 032